PETALING JAYA: After beating market forecasts for two consecutive quarters this year, analysts predict the economy to have chalked up another 5% growth in the July-September period, lifted by Malaysians’ spending power, private investments and the return of Chinese tourists.
The economy, which had grown 4.2% and 5.9% in the first and second quarters of 2024, respectively, is expanding above its “underlying growth potential”, said economist Geoffrey Williams.
He, however, cautioned that such a trend may be inflationary.
“Thus, there is a risk that the gross domestic product (GDP) growth may turn out lower because it is above trend at the moment.”
Bank Negara will be announcing the GDP figures for the third quarter of 2024 (3Q24) this Friday.
Earlier, in its advance estimate released on Oct 21, the Statistics Department had forecast a growth of 5.3% year-on-year, slightly higher than the median estimate of 5.1% by a Bloomberg poll.
Mohd Sedek Jantan, head of investment research at UOB Kay Hian Wealth Advisors, also kept his forecast at 5.1% for 3Q24, despite the higher advance estimate.
He told StarBiz that persisting pressures in the external sector could moderate the final growth figure.
“We have observed slower expansion in the industrial production index (IPI) and anticipate that weaker exports will drag on 3Q24 growth. In September 2024, exports declined amid continued but slower double-digit import growth.
“The dip in exports was primarily due to lower exports of manufacturing and mining products, with mining exports falling amid a continued decline in crude petroleum exports.
“Despite these external pressures, the resilience of domestic drivers suggests that this growth figure is strong and indicative of Malaysia’s structural resilience in a challenging external environment,” he said.
Mohd Sedek further noted that private consumption and investment remained the principal drivers of growth in 3Q24.
He said business activity, especially within the construction and manufacturing sectors, had also strengthened demand for labour, which in turn reinforces household spending.
“Notably, Malaysia saw a sharp increase in tourist inflows, especially from China, with seat capacity on flights from China reaching 123% of pre-Covid-19 levels as of September 2024, aided by a waiver of visa requirements for Chinese visitors.
“This influx provided a further boost to domestic spending.”
Breaking it down by sectors, Mohd Sedek said the construction sector exhibited notable expansion in 3Q24, indicating steady progress in ongoing development projects.
Manufacturing growth also gained momentum, with solid production increases in sub-sectors such as electrical and electronics, transport equipment, food and beverages, tobacco and machinery.
Growth in the services sector remained stable, though moderated slightly in line with a slower pace in distributive trade, reflecting a tempering in retail and motor vehicle sales.
While the agriculture sector continued to grow at a moderate pace, this expansion was driven by increased output of crude palm oil and natural rubber.
“The mining sector contracted, attributed to lower crude petroleum and natural gas output.”
Meanwhile, Williams said the final GDP print for 3Q24 is expected to be around 5%, but it is subject to seasonal factors, data correction and inventory effects.
This is a strong performance, according to him, given that the contribution of net trade has been falling since August last year.
“The factors driving growth are stable monetary and fiscal policy, less government interference and fewer disruptive policy plans.
“The government has been very sensible in cutting its interference in the economy and focusing on sound finances and fiscal responsibility.
“Domestic factors have supported growth in the face of a squeeze on net trade, although exports and total trade have grown imports have also increased so the contribution of net trade has been lower.
“The EPF withdrawals from Akaun Fleksibel appear to have been lower than expected but have still had an effect,” stated Williams.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, who expects third-quarter GDP to grow by about 5.3%, said the economy has done well amid the uncertainties over the external sector and cautious sentiment among consumers and businesses.
While retail trade and wholesale trade moderated to 5.9% and 4.3% in 3Q24 respectively, Mohd Afzanizam noted that manufacturing IPI grew by 5.8% from 4.9% in 2Q24.
“In 3Q24, nominal exports and imports grew at a rate of 7.8% (2Q24: 5.8%) and 20.8% (2Q24: 15%) respectively while the labour market is in full employment status which would mean private consumption will remain supportive to the overall growth.
“Not to mention, higher investment approval and capital expenditure among the private sector would accelerate the investment activities.”
Looking ahead into the final quarter of the year, Mohd Afzanizam said the country may maintain the 5% growth trajectory as domestic demand and external sector factors would continue to play out.
Mohd Sedek, meanwhile, said that the growth momentum is likely to extend into 4Q24, potentially at an even stronger pace.
Resilient domestic consumption, supported by a stable labour market and increased tourism, should continue to drive growth.
Additionally, the central bank’s shift to a more accommodative tone in monetary policy is expected to stimulate trade activities, while the festive season and year-end holidays are likely to further boost consumer spending.
“Overall, we anticipate that 4Q24 growth may outpace the third quarter, buoyed by these favourable conditions,” said Mohd Sedek.
On the contrary, Williams cautioned that it will be difficult to sustain the growth momentum above 5% in the third and fourth quarters of this year.
This is because, he explained, the early growth figures for the first half of 2024 (1H24) were “above average”.
“Nonetheless, given the growth in 1H24, the overall growth for 2024 is likely to be in the 4.5%-5% range, which is better than I thought at the start of the year.”
